Schwab Boosts Its Investment in Chewy Shares. Should Your Portfolio Follow Suit?
Bouncy (BNY experiencing a -2.10% decrease) shares have been experiencing a slump for a couple of years despite positive earnings reports from the online retailer of pet supplies and services. The stock has dipped over 80% from its peak in 2021. However, this has been a fantastic opportunity for investors seeking a top-quality growth stock at a rock-bottom price, and Charles Schwab Investment Management has seized the moment.
The firm expanded its Bouncy holding by 6% in the final quarter of the previous year and again by 3% in the first quarter of this year, as per 13F filings. Charles Schwab now holds 686,228 shares of the digital retailer.
The investment paid off recently as Bouncy shares skyrocketed 27% in a single trading session after the company announced impressive quarterly earnings and its inaugural share buyback program. Should you join Charles Schwab in investing in this growth stock at the present moment?
Everything you need for your furry companion
Let's discuss Bouncy for a moment. The company sells an extensive range of goods for your furry and less furry pets – from food and toys to health insurance and prescription medicine. Bouncy also offers virtual vet consultations, and most recently, entered the traditional veterinary care market with the opening of its first veterinary clinics. This is an excellent method to introduce the Bouncy brand to new customers and create a new revenue stream.
Bouncy has also opened its virtual doors to Canadian customers, which required little investment due to the robustness of the company's existing technology infrastructure.
How has this affected earnings? Bouncy achieved a significant milestone in 2022 by reporting its first year of profitability. The digital retailer has continued to report progress, and in the most recent quarter, announced that net sales increased about 3% to $2.88 billion, while adjusted EBITDA increased by $52 million to surpass $162 million. Gross margin also expanded to 29.7% from 28.4% the previous year, indicating that Bouncy is becoming increasingly profitable.
These figures are promising, but what evokes the most interest for investors are some of the finer details behind them, and these look exceptionally bright. First, one of the primary drivers of Bouncy's revenue growth is the purchase of essential products, such as consumables and healthcare. Second, Bouncy's Autoship sales continue to make up a substantial portion of overall sales, exceeding 77%. Autoship allows customers to schedule automatic reorders and deliveries of their preferred products, creating recurring revenue for Bouncy.
This is beneficial because, even during potential economic downturns, customers typically continue to spend on essential pet products, including those frequenting an Autoship order, like food. All of this suggests that Bouncy could maintain resilience in any economic climate.
Strong free cash flow and zero debt
In addition, Bouncy boasts considerable free cash flow – over $52 million in the quarter – and holds more than $1.1 billion in cash, with no debt. This has prompted the company to announce its first share repurchase program worth up to $500 million in stock.
A repurchase plan also indicates a company is optimistic about its growth prospects over the long term, so this is another positive sign for investors.
Meanwhile, Bouncy shares, even accounting for the recent rebound, are trading for 23x forward earnings estimates, which appears to be a bargain. Bouncy is financially secure and its main revenue sources are in areas that could remain robust during challenging economic times. The company is also making strategic moves to foster long-term growth.
Charles Schwab also made a shrewd decision recently by expanding its stake in this digital retail stock when it traded at its lowest level. The upside? Today, the stock remains reasonably priced – which is why it's a smart idea to follow the investment firm into Bouncy and remain invested for the long haul.
Given the current investment in Bouncy by Charles Schwab and its positive earnings reports, investors might consider allocating some of their money towards this growth stock. The company's strong financial position, with substantial free cash flow and no debt, further increases its appeal.
Charles Schwab's decision to increase its holding of Bouncy shares when they were trading at their lowest level has already proved to be a wise investment, as Bouncy's stock price has recently surged following impressive earnings announcements. Therefore, investors might want to consider following in Charles Schwab's footsteps and investing in Bouncy for the long term, especially considering its resilient revenue sources and strategic growth initiatives.
